International REIT Offers Diversification

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.
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This week’s ETF Talk introduces an international real estate investment trust (REIT) fund, the Vanguard Global ex-U.S. Real Estate ETF (VNQI), which complements the domestic REIT we featured last week.

While last week I suggested that domestic REITs might be a good safe haven in a potential market downturn, this week I’m looking ahead to 2015. The same reasoning for investing in domesic REITs that I shared last week also applies to international REITs. The only difference here is that international REITs typically have not run up in price.

I think that international markets are due for a bounce next year, so this REIT could be a good way to profit from a beaten-down investment as we move forward. Like its domestic partner, VNQ, VNQI has outperformed the rest of its market this year.

Although VNQI is down 1.1% this year, that performance actually is stronger when compared to the beating foreign markets have taken during the same period. REITs are a relatively attractive investment in a falling market, so it only makes sense that VNQI, while it has suffered alongside emerging markets, has not absorbed as much pain as other international assets. Like other Vanguard funds, this ETF has a low expense ratio, clocking in at 0.27%.

If foreign markets reverse direction and move to the upside in 2015, then VNQI stands to benefit along the way. And, with an attractive dividend yield of 4.29%, you have the opportunity to get both share price appreciation and a solid income stream.

VNQI’s top 10 holdings comprise 22.61% of its assets. These include Mitsubishi Estate Co. (MITEF), 3.4%; Mitsui Fudosan Co. Ltd. (MTSFF), 3.11%; Unibail-Rodamco SE (UNBLF), 2.82%; Cheung Kong Holdings Ltd. (CHEUF), 2.62%; and Sun Hung Kai Properties Ltd. (SUHJF), 2.55%.

This fund is an inexpensive way to get exposure to international real estate markets. If this prospect interests you, you may want to check out Vanguard Global ex-U.S. Real Estate ETF (VNQI).

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, in invite you to subscribe to my Successful ETF Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an e-mail. You just may see your question answered in a future ETF Talk.

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